1. Funds Available for the 2007 Farm Bill and the Administration Proposal James W. Richardson Regents Professor, Senior TAES Faculty Fellow and Co-Director of AFPC Department of Agricultural Economics Texas A&M University 2007 Texas Ag Forum Austin, Texas February 23, 2007

2. Presentation Outline • Farm Outlook • CBO Baseline Score for the Farm Bill • How much money will there be for 2007 farm bill? • Administration’s Farm Bill Proposal • Means Test for program benefits • Revenue Assurance to replace CCPs

3. FAPRI January 2007 Baseline Market Price, Loan Rate, and Target Price for Corn, 1998-2011

4. FAPRI January 2007 Baseline Market Price, Loan Rate, and Target Price for Sorghum, 1998-2011

5. FAPRI January 2007 Baseline Market Price, Loan Rate, and Target Price for Wheat, 1998-2011

6. FAPRI January 2007 Baseline Market Price, Loan Rate, and Target Price for Cotton, 1998-2011

7. FAPRI January 2007 Baseline Market Price, Loan Rate, and Target Price for Rice, 1998-2011

8. FAPRI January 2007 Baseline Market Price, Loan Rate, and Target Price for Peanuts, 1998-2011

9. CBO Baseline Score for 2007 Bill • CBO prepares a March Baseline Score • 10 year cost estimate for the current farm bill • Rule is that the Baseline Score must assume a continuation of existing farm programs • Some parts of the 2002 farm bill expire before the next 10 years • MILC program • Conservation Security Program (CSP) • The net effect is to further cut the Budget Score

10. March 2006 CBO Baseline of Government Payments to All Program Crops, 2007-2016 (Mil. $)

11. AFPC Projection of CBO March 2007 Baseline for Payments to All Program Crops, 2007-2016 (Mil. $)

12. CBO Score • March CBO Baseline for 9 crops was $103.2 Bill. • Our update forecast of the Baseline score is $67.7 Bill. • Or a loss of $35.5 Bill. • As a point of comparison how much was available to write the 2002 Farm Bill? • Mr. Combest and Mr. Stenholm had a CBO score of $105 Bill. for the Title I crop programs • Mr. Peterson will likely have about $68 Bill. for Title I and an expanded shopping list of new programs • Renewable fuel • Fruits and vegetable • Conservation more inclusive and extensive

13. Administration’s Proposal • Increase direct payment rates • Lower loan rates • Lower payment limits ($110,000 each DP and CCP and $140,000 LDP) • Means test ($200,000 Adj Gross Income or AGI) • Replace CCP with National Revenue Assurance • Increase conservation programs • Extend CRP • Request $5 billion more in budget

15. Dairy Wheat Wheat Dairy Wheat Wheat Feed Grain Cattle Dairy Cattle Cattle Dairy Dairy Dairy Cattle Feed Grain Cattle Rice Feed Grain Cattle Feed Grain Feed Grain Wheat Wheat Feed Grain Cotton Cattle Dairy Cattle Wheat Rice Cotton Dairy Cattle Feed Grain Rice Cotton Cotton Cotton Feed Grain Rice Cotton Rice Cotton Dairy Cattle Cotton Cotton Dairy Cotton Cotton Cotton Dairy Rice Feed Grain Cotton Dairy Dairy Feed Grain Rice Feed Grain Cattle Rice Cattle Cotton Cotton Dairy Cotton Representative Farm Outlook

16. AGI Means Test for Farm Payments • Analyzed 64 representative crop farms over 2008-2014 assuming continue 2002 farm bill • 17 of 19 feedgrain farms lose payments • Average of $77,750 lost payments • 8 of 10 wheat farms lose payments • Average of $33,830 lost payments • 16 of 20 cotton farms lose payments • Average of $87,730 lost payments • 4 of 15 rice farms lose payments • Average of $41,270 lost payments

17. ‘The Bush administration proposal for tighter crop subsidy rules sporadically would deny benefits to average-size U.S. farms, and not just to the big operators targeted, a think tank at Texas A&M University said Wednesday.  The administration has proposed to deny crop subsidies to growers with an adjusted gross income above $200,000 a year.  USDA officials say about 38,000 people would lose subsidies.  "We found it's probably going to impact more people than we've been led to believe," said James Richardson, co-director of the Agriculture and Food Policy Center at Texas A&M.  Farm revenue fluctuates, so a stellar year could disqualify a family-size farm even when the trigger proposed by USDA is the average adjusted gross income over three years, Richardson said.  In a report, the think tank said "a farm could be eligible for payments one year and not the next year.“’ The Des Moines Register

18. Preliminary Look at the Administration’s Proposal for RA • National Target Revenue calculated NTR = (TP-DPrate)* (2002-06 Olympic Average Yield) • Actual Target Revenue calculated ATR = Actual Yield * Max[Market Price, Loan Rate] • Revenue Assurance Payment (RAP) is paid if ATR < NTR • RAP paid per base acre is RAP = (NTR – ATR) / (CCP Pymt Yield*0.85)

25. Administration's RA Proposal • Does the Revenue Assurance proposal save money? • Secretary claims $5 Bill. in the first 5 years • Our estimates show only $1 Bill. savings in the first 5 years • Savings over 9 years is $3 Bill.

26. Outlook on Policy • Outlook for grain farms best since Fall of 1995, cotton and rice still show red • New farm bill is all about the CBO Budget Score and: • Fruits and vegetables will get subsidies of some kind • Renewable fuels research spending will come from somewhere • Don’t discount conservation emphasis in next bill • Caution: Doha is not Dead • Still working to get back to negotiations • Timing is critical if it is to affect 2007 farm bill • Do not dismiss WTO impacts on bill • Cotton, corn, and level of payments challenges • Our bottom line… • Very likely to have much the same programs in 2007 FB not because that’s what everyone wants but ... because it may be the best safety net we can afford